India slashed its full-year growth forecast on Friday amid slowing domestic and global demand, with officials warning the government was facing a serious balance of trade problem and will have a tough time meeting its fiscal deficit target. Asia's third-largest economy is now expected to grow by 7.25 to 7.5 percent in the fiscal year ending next March, the government said in a mid-year review, down sharply from an estimate of 9 percent issued in February.
The slowing economy has put government finances under further stress, fuelling a recent sell-off in the rupee. While tax receipts so far have lagged the budgeted estimates, expenditures are climbing at a faster clip. "There can be no denial that meeting the target (of fiscal deficit) will not be easy this year," the finance ministry said in its review, without giving a revised forecast.
Separately, the trade deficit for the fiscal year ending March 2012 is expected to sharply widen to $155-$160 billion from $104.4 billion a year ago, posing further downside risks to the weak Indian currency. Slowing demand for Indian merchandise in overseas market is also making the government uncertain about achieving its annual export target of $300 billion.
"There is clear evidence of a deceleration in exports growth," said Rahul Khullar, trade secretary, after releasing the provisional trade data for November. Net tax revenues have grown at just 7.3 percent year on year in the first seven months of 2011/12, while expenditure has jumped by about an annual 10 percent.
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